Stupid Cleverness

by Don Boudreaux on September 3, 2004

in Myths and Fallacies

One of the special benefits of being a college professor at a major research institution is being surrounded by an unusually large number of very clever people. At the same time, this benefit is also a special frustration.

Cleverness is not wisdom. It is not necessarily inconsistent with wisdom, but too often cleverness is mistaken for wisdom. And also too often, cleverness crowds out wisdom.

Wisdom enables us to distinguish the plausible from the merely possible. But the person who is simply clever excels at identifying mere possibilities, and applauds himself for doing so. Unfortunately, such facile cleverness often fetches substantial professional rewards.

One of my favorite examples of cleverness gone mad is the intellectual fascination with “predatory innovation” or “non-price predation.” In a nutshell, the idea is that a firm that innovates might – just might – gain monopoly power by doing so. That is, a firm that improves its product or that increases its production or distribution efficiency might so disadvantage all of its current and potential rivals that this innovative firm gains enough monopoly power to harm consumers. It’s further possible that government bureaucrats will be able to police against predatory innovators with such wisdom, intelligence, benevolence, and (yes) cleverness, that consumers will benefit over the long run from such policing.

Fortunately, this fascination with “predatory innovation” is less intense today than it was during the 1980s, when Clever Scholars first stumbled upon the idea. But the idea is still around. Consider, for example, this footnote from a 1997 paper by respected antitrust scholar Jonathan Baker. Baker was Director of the Bureau of Economics at the Federal Trade Commission when he wrote this paper:

The possibility of non-price predation through the development and marketing of new products is well established in the economics literature. Janusz A. Ordover & Robert D. Willig, An Economic Definition of Predatory Product Innovation, 91 YALE L.J. 8, 22-52 (1981); Joseph Farrell & Garth Saloner, Installed Base and Compatibility: Innovation, Pre-Announcements and Predation, 76 AM. ECON. REV. 940 (1986); Janusz A. Ordover & Garth Saloner, Predation, Monopolization, and Antitrust, 1 HANDBOOK OF INDUSTRIAL ORGANIZATION 537, 563 (Richard Schmalensee & Robert D. Willig, eds., 1989); see generally Thomas Krattenmaker & Steven Salop, Anticompetitive Exclusion: Raising Rivals Costs to Achieve Power over Price, 96 YALE L.J. 209 (1986).

And Judge Jackson in the Microsoft case attempted to use this “theory” to bludgeon Microsoft.

It’s true: it is indeed possible for a firm to innovate in ways that achieve harmful monopoly power; it is further possible that bureaucrats and courts will police effectively against such predatory innovations. The theories and models that reveal these possibilities are mighty clever.

But they’re also mighty stupid. Wisdom (enhanced with some knowledge of history) informs us that the likelihood of sustained consumer harm from product and production innovations is so vanishingly small that to wallow in the cleverness that reveals the mere possibility is childish – most unwise. (Years ago I criticized theories of non-price predation in this article in Regulation.)

It’s important to be aware that the range of the possible is enormously larger than the range of the plausible. Wise people focus on the latter; stupid clever people get all giddy and excited about the former.

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